Question

Explain what happens to the level of employment and the efficiency wage in each of the following cases.

a. Due to technological advances, it becomes easier for firms to monitor their employees.

b. Given new labor law requirements, it becomes more difficult for firms to lay off workers for non-shirking reasons.

c. Given changes in manufacturing processes, workers are not required to exert as much effort on a day-to-day basis to complete their job tasks.

Answer 1

a) Due to technological advances, it becomes easier for firms to monitor their employees. In this case, the level of employment will be high and the efficiency wage will be low or nil. Because there is no need to extract more productivity from the labor by giving extra income than the normal. It is easy to attain productivity by means of monitoring. Even the level of employment will be high due to hiring of low wage employees.

b) Given new labor law requirements, it becomes more difficult for firms to lay off workers for non-shirking reasons. In this case, the level of employment will be low and efficiency wage will be high because firms cannot layoff employees. As there will be hesitation from the managemnet to hire new employees due to their need to face the labor law requirements, level of emploment will be low. So, managemnet will onvolve in the efficiency wage to obtain productivity from the workers.

c) Given changes in manufacturing processes, workers are not required to exert as much effort on a day-to-day basis to complete their job tasks. In this case, both the level of employment and efficiency wage will be high. Because the change in manufacturing process eases the organisations to emplo low skilled workers and no need to provide additional incentive to extract productivity.